SMEs as the Backbone of ASEAN Economies

November 21, 2014

Senator Loren Legarda’s Keynote Speech

SMEs as the Backbone of ASEAN Economies

2nd Philippine SME Business Expo 2014

November 21, 2014 – SMX Convention Center

The importance of small and medium enterprises (SMEs) in the Philippine economy cannot be overemphasized. They are powerful platforms for income and employment generation, for socio-economic empowerment of various sectors such as women, youth and indigenous groups, and for promotion of viable rural livelihoods.

I have wholeheartedly supported SMEs because I believe that you are the future of business and investment in the country.

To support the industry, I authored the Magna Carta for Micro, Small and Medium Enterprises (MSMEs) Act, which provides more assistance to entrepreneurs by requiring lending institutions to allocate at least eight percent (8%) of their total loan portfolio to small businesses. It also provides access to new technologies and regular entrepreneurship training programs for workers to ensure the viability and growth of MSMEs in the country. I hope our SMEs are able to benefit from this law.

SMEs are in fact the backbone not only of the Philippine economy but also of ASEAN economies as they account for 96% of all enterprises and 50% to 85% of domestic employment. Moreover, the contribution of SMEs to GDP is between 30% and 53%.[1]

Given these facts, I wish to highlight that SMEs are vital in supporting regional integration through the ASEAN Economic Community or AEC.

The AEC will set the stage for ASEAN as a single market and production base that would create opportunities for business complementation, thereby transforming ASEAN into a vital segment of the global supply chain.

Although we expect the emergence of the AEC by December 2015, it is not the culmination of the economic integration because it is a work in progress, it is an evolution, much like what ASEAN itself has been.

In fact, the Department of Foreign Affairs (DFA) says that we have already achieved, more or less, a free trade area, in terms of tariff elimination.

On free flow of goods, as of 2010, duties were eliminated on 99.2% of tariff lines for the ASEAN-6 Member States: Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand. In the remaining member states—Cambodia, Lao PDR, Myanmar and Viet Nam—97.52% of tariff lines have been reduced to zero to five percent.

For consumers, this is a good development because as more goods from other ASEAN countries are made available to our country, they have more choices from ASEAN brands at lower costs.

For our SMEs, this could also be good, in a way, because competition would challenge you to do better. But, if left unprepared or uncompetitive, you may find little benefit from an AEC.

ASEAN’s bold vision of achieving the free flow of goods, services, investment, and skilled labor in the region may help the country achieve higher productivity and economic diversification. But a lot of things must be considered, especially how it will affect the SMEs sector.

We know that among the challenges that SMEs face is limited access to finance, technologies and markets. This is what we want to address through the MSME Law. Thus, we call for a massive information and education campaign on how SMEs can gain benefit from the law.

SMEs would need to cope with the changes and the demands that the AEC will bring. Innovation and creativity play a significant role in transforming SMEs into competitive components of the ASEAN value chain.

It is on this note that I congratulate the organizers of the Philippine SME Business Expo for lining up talks on how the AEC will affect SMEs and how to make the sector more competitive in the ASEAN Region and in the global arena.

Before I conclude, allow me also to share with you another advocacy that affects SMEs as well. I invite you all to join the crusade towards sustainability and resilience.

We have been experiencing stronger and more frequent natural hazards in recent years. Beyond the loss of lives, disasters have massive impacts on our economy. It has been reported that economic losses from disasters have increased 18-fold since the 1970s.

SMEs, being the backbone of the economy, have a great role in reducing climate risks and building resilience. The heightened engagement of the business sector, including SMEs, in disaster risk reduction is crucial in preventing substantial business losses and economic development setbacks resulting from disasters of unprecedented scale.

I urge all of you to put disaster resilience at the core of your business strategies. You need to craft business continuity plans (BCPs) that will show how prepared and how swiftly you can spring back to operations after each disaster.

To craft effective BCPs, I encourage you to conduct risk assessments of your respective enterprises, and establish effective and efficient early warning systems and disaster plans. It is also best if you engage in advocacies that will protect our ecosystems. Investing in adaptation is cost effective and ensures business resilience.

It is always in the best interest of everyone if our agenda is not only focused on profit or economic development. Our measure of growth should also consider how we contribute to the general well-being of the people as well as the safety and resilience of our communities.

In closing, I wish to reiterate my support for the SMEs sector. I will continue support and introduce programs and policies that would further empower small entrepreneurs. There are many challenges ahead, but you must look at them as opportunities to improve, innovate and contribute to national development.